Global stock markets retreated after the Federal Reserve signalled a fresh
round of stimulus will only be unleashed if the US recovery falters.

Investors around the world on Wednesday digested the signal delivered in the minutes of the Fed's March meeting that were released late on Tuesday.

The minutes showed that just two members of the Fed's rate-setting body used the March meeting to raise the prospect of a third round of quantitative easing for an economy that looks set to have strengthened in the first quarter of the year.

"So there will be no QE3 unless the recovery falters," said Paul Ashworth, an economist at Capital Economics. "And, even under those circumstances, it is still questionable whether there would be a majority in favour of more action."

Stock markets have been buoyed by the first two rounds of QE from the Fed, which has made lifting asset prices one of the goals of the policy.

The FTSE 100 closed down 2.3pc at 5,703.77 in London, while in New York the Dow Jones Industrial Average was 1.2pc weaker at 13,036.20. France’s CAC sank 2.7pc to 3,313.47 and Germany’s Dax dropped 2.8pc to 6,784.06.

Will Hedden, sales trader at IG Index, said: “Events throughout the day have combined with Tuesday’s QE3 'disappointment’ to create a somewhat perfect storm of reasons to exit the market.”

Although stock markets registered disappoinment on Wednesday, the Fed has not ruled out the prospect of further stimulus later this year. Ben Bernanke, the chairman of the Fed, has welcomed the improvement this year in economic data, but also cast doubt on whether the sharp drop in the unemployment rate can be sustained without a broader recovery in demand across the economy.

Wednesday saw the string of better-than-expected releases broken after an index of activity in the country's services sector fell. The index of activity in the biggest part of the economy dipped to 56 in March from 57.3 in February, according to the Institute for Supply Management. The reading fell short of the 56.8 expected on Wall Street, though remained well above the reading of 50 that signals expansion on the index.

"It is difficult to say whether the March decline represents a trend softening in the economy or simply month-to-month volatility," said Paul Edelstein, an economist at IHS Global Insight. Encouragement was, however, taken because the survey's separate employment index climbed one point to 56.7. Long the Achilles Heel of the US recovery, the jobs market has been the brightest part of the economy so far this year.

Attention now turns to Friday's unemployment report for March. The widely-watched snapshot of the country's labour market is expected to show that just over 200,000 Americans found work last month, while the unemployment rate stayed at 8.3pc.